New Military recruit needs help with TSP

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GeoMetry
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New Military recruit needs help with TSP

Post by GeoMetry » Tue Jul 09, 2019 5:32 pm

My daughter is in the new US Military BRS (Blended Retirement System)
I have convinced her to maximize her TSP contributions.
She went to the MyPay web site and the input form said the maximum she is allowed to contribute to Roth is 60% of her base pay. There was a slightly higher limit for Traditional contributions but it went to zero after she enter 60% on the Roth line.
60% will not get her up to the $19K limit.
This is her first year, she started in May.
Everything I read online said she could contribute up to 100%.
She would like to contribute 80%.
Why is she limited to 60%?

What is an appropriate TSP fund allocation for a 23 year old?

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grabiner
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Re: New Military recruit needs help with TSP

Post by grabiner » Tue Jul 09, 2019 8:46 pm

The simplest investment option in the TSP is the L 2050 fund, switching to the 2060 fund when it is created next year. (The fund allocation is based on the year you plan to withdraw the money, not the year you plan to leave the military if you continue to work in a civilian career.)
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Morgan Dollar 1921
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Re: New Military recruit needs help with TSP

Post by Morgan Dollar 1921 » Tue Jul 09, 2019 9:06 pm

There will be many opinions and she could do worse than the L method 2050 or 2060.

I would suggest 40% C, 20% S, 20% I, 10% F and 10% G. I prefer to be a little light on international exposure. My DW wanted to build a base, a foundation she called it with G, and she wanted to SWAN, sleep well at night.

Not up to speed on the US Military BRS (Blended Retirement System), but current fed employees can channel most or all to the Roth, but their match must go to the Traditional TSP.

Congrats to her and thank you to her also!

warner25
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Re: New Military recruit needs help with TSP

Post by warner25 » Tue Jul 09, 2019 9:30 pm

GeoMetry wrote:
Tue Jul 09, 2019 5:32 pm
Why is she limited to 60%?
We had a discussion about the limits in MyPay last year and Nords shared this insight...
Nords wrote:
Sat Dec 08, 2018 12:51 pm
...DFAS uses the remaining amount for withholding estimated taxes and for FICA. Even if he’s chosen to withhold zero taxes from his pay, DFAS has still coded the Roth TSP max percentage to ~60%. The traditional TSP contribution limit in MyPay is 92%, again because of the 7.45% FICA.
If your daughter contributes up to the limits of the TSP and still has more savings to invest, she can of course put money into an IRA too, or even a taxable investment account. Tax gain harvesting should be profitable for her, given all the tax advantages of active duty service, so a taxable account can actually be quite efficient.

mhalley
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Re: New Military recruit needs help with TSP

Post by mhalley » Wed Jul 10, 2019 12:32 am

Merriman has some recs here
https://paulmerriman.com/tsp/
But nothing wrong with the L.

SteveJones
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Re: New Military recruit needs help with TSP

Post by SteveJones » Wed Jul 10, 2019 5:02 am

How is she going to live? Based on how much she has to invest she is junior enlisted. Won't this large of an allocation affect her quality of life?

FrankLUSMC
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Re: New Military recruit needs help with TSP

Post by FrankLUSMC » Wed Jul 10, 2019 7:22 am

SteveJones wrote:
Wed Jul 10, 2019 5:02 am
How is she going to live? Based on how much she has to invest she is junior enlisted. Won't this large of an allocation affect her quality of life?
I have that answer! Lives in base supplied housing (barracks) and eats government supplied food (chow hall) I saved well over 50% of my pay in the late '70's.. use the other <50% having fun.

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GeoMetry
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Re: New Military recruit needs help with TSP

Post by GeoMetry » Wed Jul 10, 2019 1:29 pm

She can't put any of her housing allowance or food allowance into TSP. Housing and food allowances are not taxed. She is sharing an apartment so she will have some left over money from the housing allowance. Fresh out of college she will still have more money to spend than she has ever had before. So better to get used to saving it than spending it. Next year she only needs to save 40% to hit the $19K limit so it will be like getting a big raise.

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White Coat Investor
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Re: New Military recruit needs help with TSP

Post by White Coat Investor » Wed Jul 10, 2019 1:35 pm

GeoMetry wrote:
Tue Jul 09, 2019 5:32 pm
My daughter is in the new US Military BRS (Blended Retirement System)
I have convinced her to maximize her TSP contributions.
She went to the MyPay web site and the input form said the maximum she is allowed to contribute to Roth is 60% of her base pay. There was a slightly higher limit for Traditional contributions but it went to zero after she enter 60% on the Roth line.
60% will not get her up to the $19K limit.
This is her first year, she started in May.
Everything I read online said she could contribute up to 100%.
She would like to contribute 80%.
Why is she limited to 60%?

What is an appropriate TSP fund allocation for a 23 year old?
Just leave it at 60% and go into finance late in the year and write a check for the rest. Assuming she makes $19K, she can contribute $19K. If unsure how to invest it, just use the most aggressive L fund. I agree with the choice of Roth.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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GeoMetry
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Re: New Military recruit needs help with TSP

Post by GeoMetry » Wed Jul 10, 2019 1:43 pm

White Coat Investor wrote:
Wed Jul 10, 2019 1:35 pm
Just leave it at 60% and go into finance late in the year and write a check for the rest.
Is that something you can do? Is there a form for that?

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White Coat Investor
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Re: New Military recruit needs help with TSP

Post by White Coat Investor » Wed Jul 10, 2019 2:28 pm

GeoMetry wrote:
Wed Jul 10, 2019 1:43 pm
White Coat Investor wrote:
Wed Jul 10, 2019 1:35 pm
Just leave it at 60% and go into finance late in the year and write a check for the rest.
Is that something you can do? Is there a form for that?
No, but if you go in to Finance every day for a month and ask they'll probably let you do it eventually. Ask me how I know.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

warner25
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Re: New Military recruit needs help with TSP

Post by warner25 » Wed Jul 10, 2019 4:45 pm

GeoMetry wrote:
Wed Jul 10, 2019 1:29 pm
...Fresh out of college she will still have more money to spend than she has ever had before. So better to get used to saving it than spending it. Next year she only needs to save 40% to hit the $19K limit so it will be like getting a big raise.
Yeah, an O-1 will make about $50k with allowances, after taxes, typically in a LCOL area with no out of pocket healthcare expenses, and it goes up rapidly from there. For a service academy or ROTC scholarship grad with no student loan debt, amazing things are possible. I didn't keep good records during my first year on active duty, but I probably saved more than $20k. As an O-3, newly married but before kids, my wife and I saved as much as $80k one year. Those early years have put us in a very good place now at mid-career. $1M+ in savings with retirement pay at age 41 is within striking distance. I wish I could convey the financial opportunities to every young officer.

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oncorhynchus
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Re: New Military recruit needs help with TSP

Post by oncorhynchus » Wed Jul 10, 2019 5:45 pm

Not knowing her duty status, branch of service, or what her initial training courses/obligations will be, it may be better NOT to try and max out her savings rate until she is settled at her first permanent duty station. Many new officers have to attend back-to-back training at temporary duty stations, and with the way moving and travel reimbursement works, it is good to have plenty of liquid assets built up, eventually in a 6-12 month emergency fund. Additionally, the new duty station may have a significantly different cost of living than when one was living at home or in college. Trying to make 12 months worth of TSP contributions in 7 months may cause a liquidity issue.

Assuming next calendar year she is settled at her new permanent duty station, has a handle on what her monthly budget will be in that cost of living area with decent housing and reliable transportation, and has a reasonable emergency fund started, then maxing her savings rate beyond funding a Roth IRA and modest TSP contributions (enough to meet 1% match) would be worth pursuing.

Regards,

o
-- Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime. --

snowman
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Re: New Military recruit needs help with TSP

Post by snowman » Thu Jul 11, 2019 10:01 am

My son will go through that process in 3-4 weeks, and I expect him to see 60% contribution limit to Roth TSP per Nords post last December in the thread warner25 already referenced above. I am not sure what the maximum is if contributions are split between traditional and Roth, we will find out. My point is that I did not even consider contributions into traditional TSP until I played with his projected 2019 tax return and came across retirement savers credit. It’s worth up to $1K (single filer) as long as AGI is below $19,250. The credit is non-refundable so if his FIT is less than $1K the credit will equal his total tax bill. Not sure if/what additional income your D has, but wanted to bring it to your attention.

Another, non-related issue is matching contributions (up to 5%) for ROTC graduates (apparently non-issue for Academy graduates). My son got email last week from his unit that their first batch of graduates that reported in May had starting date coded incorrectly (commissioning date vs. contract signing date), and therefore not eligible to receive full (up to 5%) matching contributions. There were instructions attached about how to get it fixed. Hopefully your D is unaffected but something to look at just to be sure.

Valuethinker
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Re: New Military recruit needs help with TSP

Post by Valuethinker » Thu Jul 11, 2019 11:34 am

GeoMetry wrote:
Tue Jul 09, 2019 5:32 pm
My daughter is in the new US Military BRS (Blended Retirement System)
I have convinced her to maximize her TSP contributions.
She went to the MyPay web site and the input form said the maximum she is allowed to contribute to Roth is 60% of her base pay. There was a slightly higher limit for Traditional contributions but it went to zero after she enter 60% on the Roth line.
60% will not get her up to the $19K limit.
This is her first year, she started in May.
Everything I read online said she could contribute up to 100%.
She would like to contribute 80%.
Why is she limited to 60%?

What is an appropriate TSP fund allocation for a 23 year old?
Quite honestly the 2050 fund. Or 2060.

I am not an American. But I was once 23. What you want is a single decision that you make and forget about. At that age and in such a 110% "career" (calling is a better word) you don't want to have to worry re investment strategy, right funds etc. That is for old types on the internets who have too much time on their hands ;-)

krafty81
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Re: New Military recruit needs help with TSP

Post by krafty81 » Thu Jul 11, 2019 12:41 pm

Great to get her thinking about TSP! Remember contribution limits go way up when deployed to a combat zone, and there is a 10K, 10% USG savings plan that is offered during deployment as well. She will also be able to deduct her tIRA if she chooses that over Roth. Retired USN.

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grabiner
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Re: New Military recruit needs help with TSP

Post by grabiner » Thu Jul 11, 2019 1:50 pm

krafty81 wrote:
Thu Jul 11, 2019 12:41 pm
Great to get her thinking about TSP! Remember contribution limits go way up when deployed to a combat zone, and there is a 10K, 10% USG savings plan that is offered during deployment as well. She will also be able to deduct her tIRA if she chooses that over Roth. Retired USN.
However, Roth is better than traditional for most military, because military tend to be in low tax brackets now (while much of their pay is not taxable) and may retire in higher tax brackets (with military pensions if appropriate, and 401(k) plans from post-military careers). Only military at high ranks, or with high-earning spouses, are likely to be beyond the 12% tax bracket.

That said, the extra contributions from tax-exempt combat pay can be contributed only to a traditional TSP; withdrawal of the tax-exempt contributions is tax-free, but gains are taxed. Only do this after maxing out your Roth TSP and Roth IRA.
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jsprag
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Re: New Military recruit needs help with TSP

Post by jsprag » Sat Jul 13, 2019 2:28 pm

She can try to submit her request for more than 60% to her finance office using form TSP-U-1 available from the TSP website. As for the fund, I recommend L2050 to get her started.

While I'm an advocate of early and aggressive saving, I hope she isn't neglecting the importance of building up an emergency fund.

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Re: New Military recruit needs help with TSP

Post by Nords » Sun Jul 14, 2019 12:45 pm

warner25 wrote:
Tue Jul 09, 2019 9:30 pm
GeoMetry wrote:
Tue Jul 09, 2019 5:32 pm
Why is she limited to 60%?
We had a discussion about the limits in MyPay last year and Nords shared this insight...
Nords wrote:
Sat Dec 08, 2018 12:51 pm
...DFAS uses the remaining amount for withholding estimated taxes and for FICA. Even if he’s chosen to withhold zero taxes from his pay, DFAS has still coded the Roth TSP max percentage to ~60%. The traditional TSP contribution limit in MyPay is 92%, again because of the 7.45% FICA.
If your daughter contributes up to the limits of the TSP and still has more savings to invest, she can of course put money into an IRA too, or even a taxable investment account. Tax gain harvesting should be profitable for her, given all the tax advantages of active duty service, so a taxable account can actually be quite efficient.
Thanks for the tag, Warner!
GeoMetry wrote:
Tue Jul 09, 2019 5:32 pm
She went to the MyPay web site and the input form said the maximum she is allowed to contribute to Roth is 60% of her base pay. There was a slightly higher limit for Traditional contributions but it went to zero after she enter 60% on the Roth line.
60% will not get her up to the $19K limit.
This is her first year, she started in May.
Everything I read online said she could contribute up to 100%.
She would like to contribute 80%.
Why is she limited to 60%?
jsprag wrote:
Sat Jul 13, 2019 2:28 pm
She can try to submit her request for more than 60% to her finance office using form TSP-U-1 available from the TSP website. As for the fund, I recommend L2050 to get her started.

While I'm an advocate of early and aggressive saving, I hope she isn't neglecting the importance of building up an emergency fund.
@GeoMetry, I'd try the TSP-U-1 option along with ramping up her contributions to her Roth IRA and taxable accounts.

She can also start piling up cash in 2019 (in a high-yield savings account) to use for Roth TSP contributions in 2020-2025. She'd keep her Roth TSP contribution level set as high as she can and then live off the cash while a higher percentage of her pay goes to the Roth TSP.

The military makes it really hard to maximize TSP contributions during the first year of service. When our daughter got a bonus for joining the service, she wasn't able to deposit it in her TSP account (because she didn't have one yet). Instead (once she had a TSP account) she set her Roth TSP contributions at 60% and filed a TSP-U-1 for a higher contribution. Then she lived off the bonus money (in her savings account) while diverting an equivalent amount of her pay into her Roth TSP.
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